Saturday, December 8, 2012

There is supposed to be a housing revival. Like Karl, Doug Noland takes apart the z-1 or what ever that quarterly report is called. He noted that mortgage debt fell considerably. What hasn't fallen is the money we are on the line for in the GSE's, the federal deficit, which was on a borrowing basis over $1 trillion again and so forth.

It is kind of like farting in a room and leaving. The air is clear until the fart drifts to where someone can smell it. Politicians are the same way, in that we don't smell their farts until time has passed. We hear this shit about Clinton and high tax rates in the 1990's producing a boom. The credit bubble and stock market mania produced a boom. Clinton had the Republicans, Alan Greenspan and Robert Rubin shoveling coal into a downhill train. 2000, we were left with a hangover, which was solved by more booze, a housing bubble.

The fart in the room today is the Federal defict and the politicians that are still there need to do something about it. They need the Wall Streeters to shovel coal for them and the lunatics at the Fed, the delusional students of revisionist history, to provide the money. More and more debt on less and less worth. Keep the stock market inflated, so it appears we can still pay.

I was either listening to or reading Kyle Bass. The Japanese national debt is now greater than the net worth of the households in Japan is what I understood him to say. Solution? It appears they are going to try to pump air into a new bubble in Japan. Problem is, there isn't anyone over there with enough wind to blow one. They never fixed the holes in the old one. Neither have we, the Europeans nor anyone else. The China bubble rests on unsound banking practices that make the subprime mess look tame. Think we have mark to fantasy?

We are about to see the worst bear market in history. Doug mentioned one of the unintended consequences of Bernanke's shennanigans, the fact that regardless of how low mortgage rates are, they are massively higher than what the banksters are paying on your savings. You have $100K in the bank and a mortgage, you are giving up $3000 a year. Forget the tax deduction, which only starts after you have paid several thousand in taxes and interest on your house in most cases. Getting statements on $100K money market and CD's and seeing the $20 or less they credit to you for interest is stunning. Rates are about 1/20th what they should be and the system forces someone to hold the cash.

This is what is missing in this bank money era, the fact that someone is tied up in cash. It isn't a societal choice, as someone has to hold it. It isn't so much inflationary as it is deflationary, as either more and more resources are tied up in cash or, should it decline in value, the purchasing power in the economy falls, not increases. More than anything, I sense this is what has hamstrung Japan for 2 decades, excessive bank credit inflation that is used, not for internal expansion, but international arbitrage finance.

So, the politicians need some loaded ammunition. This is why it isn't fixed. The politicians are in the shitter and the bankers have the toilet paper. The only solution is to make the problem worse, as to not do so would mean the fart gets out while the politician is still there. We are now going to war and the ammo boxes are filled with more and more spent casings. National debt is a spent casing. Bank money credit is a spent casing. It can only be recycled to factories that reload it and immediately fire it and send out reloaded casings that are already spent. This is what the debt bubble and the expanding national debt are, fired casings.

Look what is going on? Intel borrowed $6 billion last week. Why? Their dividend payments were yielding higher than the interest rate on the debt, so why not load up and buy some of their own stock? We are going to find out why not in the future. This makes INTC the ultimate short in the next slowdown, which will be worse than the last slowdown, because the ammo box has been spent. INTC could reduce its dividend in a cash crunch, but they won't be able to reduce the interest on this debt, nor evade its payment. INTC isn't in the catbirds seat it was before, because so much of what is computers has moved to phones and they aren't on this sailing ship. I have read they are going to attempt to become blow buddies with AAPL, as AAPL is waging war with its supplier, Samsung. The price wars are coming in the phone business, as they have in the PC business. What happens to AAPL if margin shrinks?

Speaking of which, the 4th quarter results of AAPL show 26.028 million phone units, producing 16.245 billion in revenue. This is right at $625 per unit wholesale. Each dollar less margin produces $26 million less gross. These items will be commodities in a matter of a few years and to annualize these figures, multiply by 4. I'm sure the Chinese in the rice paddies are going to be lining up to buy these items at $1000 retail to use in places there isn't broadband capacity. I'm also sure that when Samsung and other foreign competitors decide to really get competitive, there will be charges of dumping on the US market. But, can we really get too upset by loss of revenue by a company that for the most part employs Chinese slave labor? History shows a complete round trip on mania stocks like AAPL. I'm sure their cash balances will be discussed when the market price of the stock is nearby. Remember, in 1998, everyone had to own DELL.

I was nearly out of high school when the hand held calculator hit the market. TI is 8 miles down the road and half the town worked for them at the time. A kid brought one to chemistry class. He probably wouldn't have owned one save for the fact his old man was in TI management. Half the class copied his homework and of course, couldn't work the problems when the test came out. While in college, the HP brand was AAPL. To get one of the fancy HP calculators, it was $300 to $400. By the mid 1980's, the 12C, what I consider to be a marvelous tool, was about $120. The last one I bought was $40. My sister's was run over by a car, as she had dropped it in the parking lot. It still worked.

From Doug Nolands Credit Bubble Bulletin, December 7, 2012

I’ve essentially ignored the (stagnant) banking system in my “flow of funds” analyses over recent quarters. Total Bank Assets grew only $66bn during Q3 to $14.762 TN – and were up only $197bn (1.4%) over the past year. Yet I would be remiss for not noting the 9.7% y-o-y increase in business loans (to $2.174 TN) or the 8.3% y-o-y increase in government securities holdings (to $2.231 TN). Meanwhile, Corporate Bond holdings were down 4.1% y-o-y (to $776bn), mortgage loans contracted 2.0% (to $4.334 TN) and Misc. Assets fell 11.0% y-o-y (to $1.267 TN). On the Bank Liability side, Total Deposits were up $495bn, or 4.9%, y-o-y to $10.532 TN. With federal government liabilities now locked in an historic inflationary cycle, there’s at this point a significantly reduced need for the traditional workings of the U.S. financial sector. The vast majority of system Credit growth remains governmental. In stark contrast to the mortgage finance Bubble, this Credit for the most part need not be intermediated (transformed from risky Credit to perceived safe instruments) through the banking system, or through asset-backed (ABS) and mortgage-backed (MBS) securitization. It is also worth noting that, at $7.544 TN, total GSE Securities (debt and MBS) were little changed during the quarter and declined only 0.5% over the past year. And while Total Home Mortgage Credit has contracted $660bn over the past two years, GSE securities have declined only $54bn. Despite talk of “winding down” Fannie and Freddie, total GSE securities are about where they were in early 2008. It is worth noting that GSE securities began year-2000 at $1.723 TN.Monitoring the financial sector for signs of rejuvenation remains less than fruitful. Finance Companies were stagnant for the quarter and year. Securities Broker/Dealer assets were down slightly during the quarter (assets up $70bn, or 3.5% y-o-y, to $2.051 TN). The ABS market continues to contract (down $216bn y-o-y to $1.824 TN). Money Market Funds expanded $39bn during the quarter to $2.507 TN, reducing the year-over-year contraction to $170bn. Fed Funds and Repo increased $32bn y-o-y, or 2.9%, to $1.134 TN. Funding Corps increased $70bn y-o-y, or 3.6%, to $2.256 TN. Credit Union Assets did see year-over-year growth of 5.5% to $897bn. Real Estate Investment Trust (REITs) Liabilities jumped $67bn to $792bn, with one-year growth of $172bn, or 28%.From my analytical perspective, the SAAR $299bn contraction of Home Mortgage Credit was the biggest surprise for the quarter. This compares to Q2’s $214bn contraction and Q3 2011’s $200bn decline. With mortgage borrowing costs having taken another leg down to historic lows – and all the talk of an unfolding housing recovery – I was anticipating a return to positive mortgage Credit growth in Q3 or Q4. But, then again, with negative real returns on savings and such highly uncertain policy, market and economic backdrops, it remains perfectly rational to pay down mortgages and other borrowings. That extreme fiscal and monetary policy measures foster extraordinary uncertainty – thus incentivizing a cautious approach for many individuals and businesses - reminds one of the Law of Unintended Consequences. And a “fiscal cliff” compromise, while perhaps spurring the markets’ speculative reflexes, would do little to resolve ongoing uncertainties.

Read between the lines and you might understand what is happening. The households, in general aren't taking the bait. But, there is more. Look at the GSE debt figures and the explosion that occurred between 2000 and 2008. Look back in Doug's archives, which can be found on safehaven.com's website to 2001. You will note a similar growth rate in the 1990's, money which fueled the stock market bubble.

Why no prosecution? Some of you might recall the 2008 Presidential election. Who were Obama's financial advisors? I recall seeing them listed as Robert Rubin (talk about a fart in the room), Larry Summers (the actual turd?), Paul Volker (the legitimate voice brought along to legitimize the nonsense that I am certain he disagrees with) and Franklin Raines. Who is Franklin Raines? A black man from Wall Street who worked in the Clinton Adminstration, I believe in HUD. He is also the guy who ran FNMA during this disaster. He also financed the black congressional caucus and Obama's rise to prominence. Could there be a connection?

There have been 4 years of tickers here I have read. I venture 20% of them have dealt with the thin layer of dirt overlying the massive pile of shit known as the mortgage securitization market. The whole pile likely leads to Raines and maybe Rubin. Raines was the leader of the band in the mortgage business. Any uncovering of this massive stench puts this guy and all his cronies in prison. But, he has Obama, HUD and Eric "Place" Holder between him and broad striped outfits. Raines goes, Obama goes with him, as he will be wrapped around Obama's neck like an anvil around the neck of a man in deep water. Bought and paid for. Banker capitalists don't care what are the means as long as the ends are achieved, to the point of historically putting communists and fascists in power. Anyone kicks off a little dirt, the administration quickly covers up the bare spots.
Corruption in bubbles has almost always centered around stocks and real estate loans. We had the swampland deals in the 1920's. The stock market manipulations between the trusts. All were designed to leave others holding the bag. Now we have the greatest scam, leaving the people of the US holding the bag and the elected officials arranging it.

Wednesday, November 7, 2012

I wrote this post in response and in support of Karl Denningers post linked at the bottom of this page. I rarely post directly to this site, but copy some stuff I put a lot of thought into writing. As Blackie Sherrod, an old Dallas Sportswriters used to say, this is scattershooting at my best.

Here is my two cents and I have been pretty good at figuring a lot of this stuff out over the years. Not how to fix it, because we are a mature society with a 2 year old mentality and fixing it would require it collapsing first. No one wants to give up their candy. A lot of us have a good idea how to fix it, but that requires breaking what is there. A good start would be ending a Federal program and firing all the associated workers each month. Spending cuts in DC means you are going to get a 6 ounce steak this year, a 7 ounce one next year, but we are going to cut it down to 6.8 ounces and grade up to 9 ounces instead of 10 ounces. The Democrats made up this bullshit during the first term of Reagan, when the press echoed the cruel spending cut rhetoric. The cruel spending cuts were merely a doubling over 8 years instead of 4 or whatever. If the rest of us could only be so lucky.

In any case, you should have never left tickercon 1 Karl. Hope everyone is short, because they have the ultimate fuck going on right now. NYC is on its ass. The liars are suddenly admitting that all of Europe is going in the ditch. A run over dog could have figured that one out a year ago. The US is being propped by layers of fraud. I wouldn't be shocked if that big AAPL trade wasn't a day trade. 1.5 million share, a $2 loss wipes out the capital. Settle at the end of the day. Get the toilet paper ready and hope the next open is up so you can get out. It is always a rogue trader who pulls what the internal control should make impossible. Bet it was an order from the top. AAPL always goes up doesn't it? The models are used because reason says they usually work. When they don't, the result is disasterous, because the whole boat is always full of outfits trading outside the rules with insufficient capital. They always fail to work at some point, usually when it is considered they always work. I recall skipping empty cheap champagne bottles across the parking lot as a kid. I dropped one at a party on carpet once and it broke like an egg.

The government spending component of GDP is bullshit and when it is deficit spending, even though there might be a time lag, the end component (x-i) shrinks on a net basis. If the USA wanted to solve their trade deficit, the first thing that would be required would be for banks to quit financing government deficits. Being a country saturated in debt, the deficit would disappear overnight. So would the Chinese economy, but they are likely our highest potential foe in the next big war, so why not. Things would get cheap too, wiping out leverage.

How do you fix the government and its finances? I'm not sure it is trashing welfare or unemployment insurance. It sure isn't propping prices or taxing the hell out of success, though I would consider raising taxes on rents and other financial gains, as the current structure serves to perpetuate the mathematical divide between possibility and impossibility. Large financial pools of stagnant capital, such as my family's rental properties, save on a grander scale collect rents out of the middle class and government and compound the returns into more rents. One way or another, the end gains on these investments are going to be altered downward. Capital gains? Index to inflation and raise the rate. No one should pay tax on what isn't a real gain, due to government and banker devaluation of money, but those that benefit from acquiring money ahead of the curve should pay a real tax, if we are going to have an income tax. Romney would have won the election had Bain paid a business tax instead of a capital gain tax that was totally derived out of speculation and favorable borrowing terms. He would likely have been much poorer and maybe not have ever been in the asset stripping business in the first place.

Romney was crucified by the idea to cut public TV subsidies. You have to start somewhere. If I was President, I would propose such a plan. Don't laugh until you think it out. Start with public TV. Next month, do away with something else. Each month go after something bigger. Maybe at a year or 18 months, close the department of education, giving states the time to either come up with their own programs or do nothing. Close the department of energy or put it on the fast track to do what Karl proposes with energy. They have been playing with their dicks up there for over 30 years now. Get rid of the DEA. I would get rid of the BATF as well and put what is necessary for both operations in the FBI. Might as well get rid of the SEC as well, as they do next to nothing, other than train evasion officers for Wall Street.

180 degrees from Obama, I would repeal any law that supported closed unions, where employees were forced to join. Think this multi-billion dollar slush fund didn't buy Obama the election? Unions are business enterprises that make their money out of extortion and crony politics. If a union is truly effective, people will pay their dues. Otherwise, the system is set up to unionize and enforce dues. Don't think for one minute the $700 billion Obama stimulus didn't go to protect and enhance union jobs. The GM rescue was nothing more than a $50 billion gift to the UAW. GM will be broke again.

The medical industry needs to be reformed and this starts with insurance coverage. Every insurance plan in the US, including the government ones presents nothing but a free pool of money to grab. More and more creative ways are found to grab the money, which is why the costs are out of control. I would start with making all insurance catestrophic, maybe $25,000 or $50,000 starting points. I would ban prescription plans, which I see as a front to scam the public. You only need go to Walgreens or CVS with your next cash prescription then go to Costco and see what kind of system we have. Criminal.

With a limit of $25,000 or $50,000 to be paid out, the insurance or plans for basic coverage could be styled as monthly expenses or for many people, they could merely do without and create a sinking fund. With most medicine unprotected, I think you would see a competitive system. We could see a return of the charity hospital system. If there were drug plans, I would set them up where there was a minimum $1500 deductible and insurance companies reimbursed the customers. There isn't much to setting up a plan that goes to an online account. The point being, the pharmacies don't need to know if you have insurance or not. You can bet there would be a more competitive pricing system and we wouldn't see the dual pricing we see today. These are observations from the outside looking in.

Lastly, KD grouped Libertarians in with Republicans and Democrats. The problem here is what appears in the Libertarian party aren't libertarians at all, but one or 2 topic people attracted by these causes. When someone joins a cause because they want to smoke dope, but they also want the government to enforce bullshit against other people, they aren't libertarian, they are potheads. When women vote Democratic because the government will mind their business for them, but they want privacy in other matters and want the government to mind their business, they are hypocrites. This is an anti-Libertarian stance. It takes a lot of education to become a true Libertarian, because we have had a lot of brainwashing all our lives to the contrary. True Libertarianism is a complex group of ideas, most Laissez Faire, but some redistributive if the benefits to an individual or group stemmed from an endowment from the State. Large land grants of various governments around the world were very anti-libertarian. Jefferson was likely one of the originals. Compound debt against productive people is the most anti-libertarian of all issues. Government ordering us around in our every day lives is another. The endowment of financial privileges is anti-libertarian and it is clear to me a bank charter in the current system is nothing more than a "Title of Nobility". Libertarian and political social fascism that prevails in the western world today are polar opposites of each other. If you ask the typical person on the street if they support fascism, they would feel insulted. But if they went to the polls yesterday, likely the voted to choose between 2 of them. There are several paths to take to get from point A to point B and we are stuck with a choice of paths, not destination.

Tuesday, August 28, 2012

I wrote this on Karl Denninger's Market-Ticker. Seeing as I do most of my writing there, I will generally repost here what I believe might have some weight.

Balance sheet depression or recession=built too much shit that now doesn't perform so can't build more, loaned more money than can be paid back, so don't have choice but to pretend and extend, especially in the banks. The biggest problem in Japan was they waited 15 years or more to close any banks. The Japanese economy was built on a debt pyramid as savings is the mirror of debt in a debt system and you can only count book value in real savings, as stock prices are arbitrary and dependent on the other side of the economy (those that don't own stocks) being able to continue to spend. Stock prices supported only by the spending of those that own them equates to pulling ones self up by their own bootstraps.

The problem with the Libertarian party is those running the party aren't Libertarian. Kind of amazing the Dallas Fed mentions Mises. It must scare the crap out of Bernanke and company, the banksters to the moon, inflate, pretend and extend, we are all dead in the long run group. Modern banking is a statist system, bankers endowed to do what can't be done by the state. That is pretend something is there that isn't. Go on insolvent, while looting those that deal with them of everything. The facts are that government along with the Fed is allowing bankers to steal our property, pretend their assets are good, while allowing them to depreciate their liabilities, which is what they owe us without compensation. I think this violates the 5th amendment, but then again, the statists aren't concerned with the bill of rights, save for allowing politicians to mention them and courts to use them to justify some absurd ruling that violates other amendments.

America wasn't supposed to have a ruling class. The only group that wanted a ruling class in 1800 was the bankers and their cronies. No State shall make anything but gold and silver coin a tender in payment of debt. When the chips are down, who can't pay their debts, because they are up to their eyeballs in fraud? The bankers. Laws were rigged to change deposits in banks from bailment to loans. Now we have monkeys in buildings in DC and NYC that dilute the money, paying us with what we owe instead of what we put in. Over 100% of all currency in circulation is owed back to the Fed. They got our capital for nothing, as it takes some kind of liquidation of goods, services, property and such to acquire government debt or what ever the Fed monetizes. They might be getting the assets for free, but we aren't acquiring the money.

Contrary to belief, that clause didn't make gold and silver coin money. It was already money, but people could have made anything they wanted to be money, as long as they wanted to contract for it. Governments have used money to produce bondage ever since we have had written history. Read Genesis, with Israel getting trapped in Egypt. The writers of this clause knew government and banksters would find something besides gold and silver, like bills of credit (why the Fed can't be part of the government) to loot us.

A constitutional republic cannot stand for long without contracts payable in gold and silver. Pharoah and the banksters take over and before long the people are asking "mother may I". Gold didn't fail because it was economically wrong, but because it didn't satisfy the banksters and the socialists. Who has it all now? The governments and banksters. They owe it all back to us.

One of the Rothschilds said it 200 years ago, that he didn't care who made the laws, just let me control the money. Private money is the core of Libertarian thought. Gold was used because it was stable, portable, divisible and not consumed in the sense that it perished or turned to trash. Price stability is the antithesis of gold, as price stability is all about inflation and has nothing to do with finding the true liquidation value of anything. Price stability is the mechanism government uses to feed its cronies, at the expense of the rest of us. Once gold turns to paper, the gig is up.

Gold is antiquated, only because it isn't in agreement with modern banking and socialist governments. But, note they hoard it and keep it from us. There is no way you can lever gold 20 to 1 and have a 5% interest rate and have the system last very long. Leverage was done very carefully under gold. It was the paper redeemable in gold that was unstable.

I don't get into this battle about the price of gold, only its role in a libertarian, free society. People can promise a load of peanuts for a car if that is what is agreeable, but they can't take that to the bank today. This is the problem, what you can take to the bank. Isn't it the totalitarian system that is developing around us that we should be concerned with, the system of statists and their bankers?

How can you have a dollar of capital when we can't agree what a dollar is? Is it a dollar of capital or 50 cents of capital or in the case of the last 100 years, a couple of cents? In the meantime, we have a bankster led government that is taking on debt that can only be satisified out of the productive resources of the economy. The debt is to be payable to banksters, directly or indirectly. Many of which have no capital up, nor could they pay their debts themselves. The cartel, run by Ben Bernanke, creates bills of credit on bills of credit to continue this scheme. The scheme isn't for economic growth, as economies grow according to the people and assets in the economy and not according to the profitability and actions of the banks and governments.

Wednesday, August 15, 2012

I posted this in response to Karl Denningers postThe Red Pill On Banking . Karl is what I consider to be an important mouthpiece of the Libertarian movement and operates the Market-Ticker website. Due to the importance of this subject matter to our future prosperity, this appeared to be a valid topic to preserve on my site.

Then, what this says is a bank would have to receive an actual deposit, unencumbered by debt to make a loan. If they were lending actual money they possessed, there would be no need for the Fed. I think the problem is a lot deeper than that, in that depositors couldn't have immediate access to their funds, because they were all loaned out. This would mean, as I believe I have seen Karl comment, there would have to be 2 type banks, one of which never loans money, but merely holds it for customers.

Here is the rub on money. You hear this nonsense that money is going into the stock market, like it disappears. Money only changes hands or is created out of debt or disappears in the payment of debt to banks. It also cycles through accounts. Clearly the lending bank would have to also have an account at the deposit bank, because this is where the money is. Thus a lending bank would have to borrow out of the accounts at the deposit bank and I believe it would work more like the money market accounts. They would have to bid for funds and what they borrowed or loaned would merely change accounts. Whomever loaned their money to a lending bank would no longer have it.

The effects? For one, as lending went up, interest rates would also have to float upward. A fixed amount of money against a growing amount of loans would imply a growing need to acquire money, either through selling something or through productive enterprise. This would restrict boom and bust and discourage marginal investments. The idea we would have a Fed fooling with the rate of interest would destroy the entire self regulation of the system. Inflation and low interest rates are counter to each other and I believe we would have to keep the government out of this as well, as it would only take a short while before they were back into cronyism and destructive inflation.

In America's Great Depression, book page 71-72, Rothbard makes this comment. This is an important feature of economics, banking and government in that depressions are caused in large part by continual efforts of government and central banks to prevent true price discovery. A prime example would be the government subsidy for Solara or whatever that outfit was. Most people can't comprehend their wages declining and their standard of living increasing, but this is the true nature of a limited money system. It probably beats hell out of a system, where $30,000 a year today barely supports what $3000 a year did 45 years ago. Quote follows:

Just as in the case of the acceleration principle, the fallacy of the“investment opportunity” approach is revealed by its completeneglect of the price system. Once again, price and cost have disappeared.Actually, the trouble in a depression comes from costs beinggreater than the prices obtained from sale of capital goods; withcosts greater than selling prices, businessmen are naturally reluctantto invest in losing concerns. The problem, then, is the rigidityof costs. In a free market, prices determine costs and not vice versa,so that reduced final prices will also lower the prices of productivefactors—thereby lowering the costs of production. The failure of“investment opportunity” in the crisis stems from the overbiddingof costs in the boom, now revealed in the crisis to be too high relativeto selling prices. This erroneous overbidding was generatedby the inflationary credit expansion of the boom period. The wayto retrieve investment opportunities in a depression, then, is topermit costs—factor prices—to fall rapidly, thus reestablishingprofitable price-differentials, particularly in the capital goodsindustries. In short, wage rates, which constitute the great bulk offactor costs, should fall freely and rapidly to restore investmentopportunities. This is equivalent to the reestablishment of higherprice-differentials—higher natural interest rates—on the market.Thus, the Austrian approach explains the problem of investmentopportunities, and other theories are fallacious or irrelevant.

There seems to be a belief that dollars have babies, but they don't. Reserve bank lending is based on the idea that there is more money available than has been created, as money originates with banks and interest is attached. The concept of an expanding money supply has little to do with the economy and a lot to do with keeping the loans on the bank ledger performing. Thus more and more collateral is needed to keep the system going and more money has to be created to pay the interest that is coming due. The public is faced with the dilemma of struggling to pay what they owe, file bankruptcy or borrow more and the banker is faced with the dilemma of either lending more or writing their loans down out of their capital reserves. Increasing bank capital is nothing more than accounting for money that never existed in the first place, through the addition of more money that never existed. Fed policy is based on buying assets bought with money that never existed with notes that can be exchanged between banks and other banks and between them and their customers. All compound debt.

Under a gold standard, there was always the gold. I find it highly doubtful that trade beyond borders could be established out of purely government issued money. The whole thing would be a farce. Gold was eliminated through debt and collateral, not because the government could print money. We are now totally in a legal tender for payment of debt and outside of this factor, the ink on a dollar is worth more than the paper. But our houses are valued, our businesses are valued, our cars are valued and through the income tax, the government establishes a bondage that demands this money. The basis of the dollar has little to do with its real worth, but in the structure of debts internationally. Should it fail, it would be necessary to go back to a gold standard to repeat the process, as this would imply the structure of international debt had come unwound and there would be no use for dollars. This is why the dollar is king and the yuan has little international value.

Where I carry this theory forward is that debt in the system is nothing but compound interest piled up as money. This probably leads into a gold bug idea that gold and silver were the base of the current system and are all that remain of the non compounded interest. Due to Breton Woods, the US has to produce all the debt to keep the world system afloat, thus we had $5 trillion a year in new debt coming into the system at the bubble peak and since then, much of the rest of the world has run into trouble. In the 1990 period, the US slowed down and there went Japan. Once the US began expanding again, the excess went to China, not Japan and the advent of the Euro gave the Southern European countries access to some of the credit. Bubbles appeared in these countries along with China, even though Japan continued to deflate. China continued the boom, attempting to use their own credit, but such an expansion cannot go on and wouldn't have made it this far if not for the rigged game the Chinese banking system is. There has been no price discovery allowed in China other than exports and as such all kinds of misallocations of capital have been allowed to go on.

Creating debts that involve the money supply and having more money due than is possible to pay back, as the banking system has been allowed to do through state and national charter, has to be changed. If this is changed, government interference in the price discovery mechanism also has to stop. Lending out of the money supply should be done at the risk of the indivdual depositor at market rates, set without any interference by the government. The idea we need more money by diluting the money is like deciding we need more whiskey and getting it by filling the half empty half gallon bottle with water. This might work if you drink your whiskey with water, but it would be wise not to add water when making a drink, at which pace you would run out the same time. This can be illustrated by the fact that $30K a year is about what $3000 a year was 45 years ago. 10 times as much liquid, but the same amount of booze.

Lastly, I have suspicion of any thing that comes out of Chicago. I would suspect the University of Chicago was behind this and the Rockefellers bankrolled that institution. The Rockefellers also were behind the creation of the Fed, Nelson Aldrich being one of John D's in laws. Rothbard's Origins of the Fed covers much of the 15 year smoke screen employed to sell the Fed to the government. Worth reading at the following link.

Wednesday, July 18, 2012

This is a paragraph out of Paul's 1988 book, Freedom Under Seige, page 24 of the pdf. The book is free to read at Mises.org, linked below.

Today it is usual to assume that the government owns all that weproduce, and through government generosity we are permitted to retain acertain portion. We routinely hear that if a particular tax is reduced, it will be a "cost" to government. This concept must be changed if the idea ofindividual liberty is to survive. There is no such thing as cost to government.There is only cost to people. Government cannot grant to us our right to lifeand liberty, it would mean that government controls all that we produce.Sadly this is essentially the situation in which we find ourselves today.

There is nothing more counter to this idea than the recent widely publicized speech of Barack Obama, chiding the small businessman for claiming success, as if the government produced, out of thin air all that went into his success. A slave holder might have bought and paid for his slave, but he had to take care of him and punish him if he stepped out of line. Is our government acting any differently toward the productive people of the US? Wasn't the slave conditioned to believe he was there for the master?

There are people that say we need to take our government back. I think it is more than that. We need to get rid of most of the government and what we keep largely needs to be in our own counties, home towns and states. What we need to do is get our shit back, get our individual rights back, including our rights to defend ourselves, rather than wait for the police to leave the donut shop to respond to a theft, mugging or murder that has already happened. We need to end this banker monopoly, the herding of all of us under regulation written to prefer a small group at our expense. This line of thought might be painted as wacko, but if it is wacko, so was the overturning of slavery in the 1800's, because this is what in essense it is.

The idea of Libertarianism isn't to get the government to do something, but to stop the govenment doing a lot of what it is already doing. There is no liberty in coercion and not only in coercion, but in taking actions to coerce others to do something. Stopping the looting of the productive forces, whether it be capital or labor, as capital comes from labor and little else has to be the force of government. Protecting the life, liberty and property of all. The problem is once we enter into the sphere of regulation, we are regulated, thus we face the broad swath of the commerce clause, well beyond where its lines were meant to be.

I, for one, have never read anything Paul wrote. I have been busy reading the modern libertarian thought of Rothbard, learning who is who in modern economic thought and finding if their public record is equal to their real record. Guys like Friedman are painted as free market, when in fact they are merely statists of another color, put there to aid and abet big government and bankers at the expense of individual creativity. Today, I decided to get in the Ron Paul section of the literature and picked the above book, as it was written on the 200th anniversary of the Constitution.

If any of us are going to get involved with the Libertarian movement, we need to learn what the whole philosophy is, not what we hear as lip service. A good place to start is probably Albert Jay Nocks, "Our Enemy the State" or the followup written by Frank Chodorov's "Rise and Fall of Society" to get a clear idea what statism of any philosophy is. Until it becomes plain what the state does, who it serves and how it works, there is little to do but join in on the circle of bullshit that plays out on the typical election cycle. In the meantime, the state shovels more of our production into the hands of bankers and other cronies, foreign and domestic. There needs to be a lot more negative action in government, that is, they shall not instead of we have to.

The USA is still the richest country on Earth. Otherwise it couldn't support so many leeches sucking blood from its core. The problem is the entire system is now based on more leeches sucking off the body and through continually weaking the body, it becomes more susceptible to a fatal disease. Ideas like we can gain by debasing our currency or they must be cheating because they are giving their stuff away defy plain old country logic. Poor countries can't get rich by giving their shit away any more than a country can prosper by destroying the value of its income. This is merely the philosophy that took Rome down the tubes over 1500 years ago.

Ideas like ending the Fed will never gain widespread support until the detriment to the average productive person through the Fed's actions is understood. When it becomes clear the purpose of the Fed is to allow the cartels, the banks and protected big business to gain possession of more of our future income and not for economic growth, to grease the skids of government to spend more of our future income to buy influence and our property in the present, what to do will become clear. Fortunes less than mid 8 figures are not in position to take advantage of these actions and only a few with skill and luck are going to join this group. It is class warfare of the state at its best. When people begin to realize the reason they can't get ahead is the government and the bankers have already spent our ahead, things will change.

Friday, June 1, 2012

The amazing thing about the decline into the close yesterday is it formed an almost perfect elliott wave on the prior decline. I don't question the decline, but the rally instead. News yesterday wasn't that good, unless one wants to buy into the nonsense rumors about fixing Europe. The exit out of the stock market is going to get narrower and narrower.

Every time something like this comes up, there is more talk about QE and stimulus. What the hell do you think we already have? The only difference between QE and t-bills is a fraction of a percent. In fact, German 2 years are trading at near zero. They don't print money and throw it in the street. It is more like selling your free and clear house. Someone else has your house, you have $100,000 or whatever the sales price was. In fact, Fed money is a debit entry, so instead of having bonds or bills, the banks have liquidity. If the Fed buys directly from the government, the cash does end up in accounts.

The big bullshit is the story of deleveraging. Deleveraging what? As long as the amount of debt in the system remains the same or grows, there isn't any deleveraging. I hear the delusional Richard Koo talk about the private sector in Japan deleveraging over the past 20 years, yet their private and public debt is now over 500% of GDP. Absolute bullshit when you look at the real figures.

What QE actually does is give banks more free liquidity to run corners in stock, bond and futures markets. A bank can be legitimately bankrupt, but if it has funds to exchange in the markets, it can appear as solvent as John D. Rockefeller. Drop the FDIC insurance back to $100,000 and see how solvent some of these TBTF banks are. I suspect banks like BAC, C and JPM are already short actual funds and still beholden to the bond and fed funds markets for their liquidity.

This brings up the reason for QE in the first place, to keep the TBTF banks solvent. These are the outfits that are fucked when the markets start coming apart. Wasn't LTRO in Europe a back door bank bailout? More money in the accounts to pretend their assets are good. The ECB is so full of crap and worthless IOU's that if any large group of speculators questioned the Euro, it would collapse in a pile of rubble. The quoted solution, eurobonds, would be the nail in the coffin, as a partially solvent Germany is the only pillar of any size standing in Europe. France could no more do what has been forced on Ireland, in regard to their banks, than Hollande could follow the cow over the moon. So, the only solution is to give the drunken sailors more money to finish their binge.

Then, we have stimulus. The idea of stimulus would be okay if they ever took the stimulus away. Fed spending never went down after the $700 billion plan. In fact, I think $700 billion turned into $1 trillion and has remained there. The fiscal condition of all countries involved has deteriorated greatly over the past 4 years. Instead of solutions, you get comments out of the President that a legitimate country pays its debts, so raise the debt ceiling so we can borrow more to pay. This idea and intelligent life don't fit in the same sentence, pure absurdity, but it sells to someone. Namely it sells to idiots like Nobel Economic Prize winners. Someone beat me in the head with a baseball bat, as I could stand to win that prize myself.

Fedup.org had a link yesterday to a Scribd presentation by an ex GS guy. What he brought up was the end of the road, which will begin with bank failures in Europe. Watch this Bankia situation. If not Bankia, it will be some other bank. It could be the big bank in Belgium (Dexia) that rolled over last year, that is being floated on fiction. The one thing floating the US right now isn't the wonderful economy. It is more like my girl friend has herpes, theirs has AIDS. Mine looks pretty good if you have to make a choice. Or, you can remain celebate and buy gold and put it in a hole in the ground. The Euro could vaporize over night.

The CNBS crowd always brings up buying stuff that isn't exposed to Europe. How has that worked in Europe for what wasn't exposed to US housing? What isn't exposed to Europe is exposed to what is exposed to Europe. What is going to be exposed to the world debt markets? The whole matter. When is Japan going to blow? It will and when it does, the world will look to the US and discount its debt as well. The attractiveness of 10 year treasuries and 10 year Japanese bonds at this time is you can get money from the Fed or the JCB on these items. There is a lot of stuff out there where there will be no market or only at a very deep discount.

Think interest rates are coming down? Ask Spain or Italy if they are headed down. The door on risk is about to close. QE will get a small blip on the radar at best. The floor before the market broke down in 2008 was 1200 SPX. We are a mere 7% above that level right now and below quite a bit of the trading during that sideways move. Hundreds of billions have been invested in the SPX to cover recapitaliation of banks and loss of bankrupts. There have been 2 rounds of QE, a bailout of the banks, $5 trillion or more in deficit spending and the market has gone nowhere. If you had stayed in 10 year treasuries from July 2008 to the present, you would have beaten the stock market by a good margin.

The one thing that amazes me is the move in gold on the employment news. Remember, the guy on the street can't rush in and buy or sell gold or the stock market on this news. Why the plunge in stocks and blow in gold? I have 2 words, Goldman Sachs. How many contracts does it take to move a gold market or a stock market? Not many when the world stops. When I say Goldman, it could be JPM or both or all of the above. Best guess is there were a lot of shorts in gold as a hedge, as gold and stocks have generally been moving the same direction for some time. If this is the case, they likely were blown out in both directions. Never forget, in markets the guys you are dealing with can see our cards.

Thursday, March 8, 2012

I wrote this in response to a post on Karl Denningers Market Ticker. Assets can only exist to the extent the profits can be transferred from one group to another. When the pool of assets grows beyond the capacity of the economy to pay the required return, the expansion is over. This is true whether we are talking capital investments or debt instruments. The value of the capital instruments are merely lost. The current rally in stocks has nothing to do with the capacity of these assets to produce a return, but instead the massive intervention of more government debt and the asset inflation policies of the various central banks around the world. These profits are necessarily loaned to the consumers to support their consumption. In the end the returns will be false. We witnessed the asset inflation in Japan that hasn't been solved after 20 years. Japan is currently trying to solve the problem by shrinking the yardstick from 36 inches to maybe 15.

I am going to nail this one on the head. It is called compound return. It doesn't make any difference what you call it, printing, savings, cash, stocks, houses. They all are bought to provide a return and a growth rate. Savings is debt. Stcok prices require a yield as do mortgages and free and clear real estate. When XYZ public employee, who in a lot of places is under paid and may not even have any benefits and in other parts of the country is paid like he does something besides drive around town with a gun on his hip and a ticket pad. I will bet driving a taxi is more dangerous than being a cop, though the cop likely has to be aware of potential danger all the time, but this is besides the point.

The point is the entire economy can only be carried by shrinking the package paid in return. Watch what Bernanke is really trying to do. Interest rates near zero. Bankers can't pay so we are now letting them pay nothing. Bankers customers can't pay, so Bennie is trying to put more money in the system, shrinking what the debtors have to pay. Business is on its ass, though you would think they were making money hands over feet. This is mere deception, funded by $2 trillion a year through the back door. Bernanke is funding their profits at the expense of our savings. It is an attempted back door bail out of the public pension funds, but in reality it is nothing more than a transfer of what we need today to an expense for tomorrow.

There is no such thing as a permanently funded pension fund where liabilities grow to the sky. The question that must be asked to start is why do we even need a fund, unless we are going to pay these benefits, then default? The value of assets is unstable as we reach the point where the return cannot be drawn from the economy on a compounded basis. What we really have is a pile of funds for Wall Street to manage and draw massive fees, dump over-valued assets and then demand more, because their phony models can't be satisfied.

In a pension plan, there are 2 expenses, what is coming out and what needs to go in to fund the future. The only real expense is what is coming out. What goes in doesn't count, because it is pure speculation. All we are really liable for is what comes out. What is piled up can never be large enough in sum, as it is a fiction and the failure of what is amassed can wipe out the entity liable to fund it.

I venture the funds have never been necessary, but are political plums for bankers and politians to play with. History has provided us with a stock market that has registered between 40% and 80% of GDP in value. Not this stock market, which has hit peaks of 200% of GDP in 2000 and bottomed at 100% in 2002 and likely in the 70% to 80% range in 2009. Stocks aren't cheap today and they haven't been cheap for nearly 2 decades now. To make 8% or 10% or whatever nonsense is spouted can only be done in stocks with inflation or low valuations. The rest of the story is fiction. How do you draw 8% out of 200% of the GDP and leave anything out there that doesn't have to be funded by debt? We are currently at over 100% of GDP and much less if you take out the government, which is nothing but an expense anyhow. 8% of 200% is 16%, which is the limit Karl has said the federal government can get out of the economy and we haven't even made it to the various debt instruments and free and clear real estate net of debt instruments out there. The concept of continuing returns on a growing amount of assets in a zero inflation environment is fantasy. Drawing a return off the pool of yield or profit making enterprises is limited to what those not engaged can pay. We are limited to the amount of bad debt the system is willing to extend and nothing else.

Here is the problem we face. If we are dealing with having to inflate, as Jim Grant said yesterday, we are merely shrinking the package, making smaller pounds and gallons. The numbers become meaningless. Also, pension expenses are figured on what size pool of money at the current interest rate over life expectancy. What is fundable at 6%, becomes impossible at 2%. To tell me the best way to do this is to amass a pool of money so large that all future costs can be paid out of it? Why the fuck give an insurance $2 million (an amazing number of these public pensions cost $2 million or more), when you can write the pensioner a check for $100K a year? 10 years ago, the same pension needed maybe $1 million to fund. It doesn't even make sense to pay for the management of money at 2%, much less treat as permanent what may be very temporary.

Remember this adjustment has to be made on the entire pool. Not only have the assets performed poorly, because it is a mathematical fact you can't get 8% exponential growth at top value against something that can only pay 4%. Not in real terms. Bernanke can fold the dollar in half and tell you to look at both sides of the bill and pretend you have 2, but this is a fiction and has nothing to do with real values.

My problem with public employees isn't so much the pensions and the compensation in general. Even though a million isn't what it used to be, a small minority of Americans have a million dollar net worth on hand and if you take out the value of their home, the list gets much smaller. The typical cop and firefighter in California gets a pension that costs upwards of $2 million or more. This is guaranteed, just stay on the job and do nothing stupid. That is unless they have bankrupted the system from which they draw.

There is a maximum for what level real values can be supported. The implied risk on the SPX is 6%, if you are going to get 9% returns at 3% inflation. I have done the numbers over history. The modern history of stock market returns(the last 30 years) have been supported only by inflation of the money supply to effect asset inflation. Jim Grant pretty much put this idea out in a way that probably went past the average person on CNBC yesterday. The game is up once gross net worth of an economy reads near zero relative to total assets, that is net of debt, which is owed on one side and owed to on the other. This idea includes equity in real estate and the stock market.

The question is, how do you get this 6% without stealth inflation, which is nothing more than the expansion of credit? I think you can only get it with very low valuations. The valuation model in pensions presents a paradox, in that existing assets have an inverse relationship to interest rates, which means that the model can't be fixed. The benefit of higher interest rates would assist the pension in its pay out expense, but it would deplete the value of the assets on hand significantly. We are seeing inflation today, but it isn't credit inflation so much as it is asset inflation, which includes storable commodities. The problem here is the credit inflation isn't making it to the end consumer, so the gap can't be supported for long.

If I was going to work out the public pension problem, I would move to a pay as you go system. I would fire my manager, bring in someone for an annual analysis and fund my costs on a pay as you go payout. Selling a fixed amount of assets and putting the rest on the current budget. The shortfall is impossible to fund and if it was attempted, would only serve to push up the prices over the short term of what I had to buy to fund the plan. This would get the money out of the hands of Wall Street and eliminate the uncertainty of asset value fluctuations. The same holds true for Social Security, which is an ongoing expense where a actuarial fund has no place, especially since it is only funds the government pretends to have that they don't have.